Office Of Financial Research Studies Financial Contagion

The Office of Financial Research, or OFR, was created by the Dodd-Frank Act.  It recently published a paper with the title “How Likely is Contagion in Financial Networks?”  The paper notes interconnections among financial institutions create potential channels for contagion and amplification of shocks to the financial system. The authors estimate the extent to which interconnections increase expected losses, with minimal information about network topology, under a wide range of shock distributions.  The authors note expected losses from network effects are small without substantial heterogeneity in bank sizes and a high degree of reliance on interbank funding.  They are also small unless shocks are magnified by some mechanism beyond simple spillover effects; these include bankruptcy costs, fire sales, and mark-to-market revaluations of assets. The authors also illustrate the results with data on the European banking system.

Check dodd-frank.com frequently for updated information on the JOBS Act, the Dodd-Frank Act and other important securities law matters.

Topics:  Dodd-Frank, Networks, Office of Financial Research

Published In: Finance & Banking Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Stinson Leonard Street - Dodd-Frank and the Jobs Act | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »